What Do You Do If Your Investor Wants To Take Controlling Interest In Your Company?

You're ready to get investment in your company, even have some attractive offers, but what seems like the best offer includes an investor who wants controlling interest of the company. What do you do? When an investor wants to take a controlling interest in your startup, you need to think about whether you really want the funding from them, and if you are prepared to welcome that much involvement. Their funding means giving up more equity and say over where the business goes in the future.

However, you may have doubts in your mind already that you cannot do it on your own because of the lack of experience and connections. Or, maybe there is another way to handle the situation with the investor that offers mutual benefit. Here are some things to consider when deciding whether or not to give up controlling interest:

What Do You Want from Your Idea?

Before going to any investor, you have a lot to consider:

Are you willing to give up controlling interest in your business if it means getting the funding you need?

Would you agree to this arrangement if you and the investor were in complete agreement about the short and long-term plans for the company?

Can the business continue operating while you opt to keep looking for an investor who does not want a controlling interest?

Will you be seeking out other investors in the future for further rounds of funding?

Once you decide the role you want an investor to play, then you seek out those investors that fit the bill. The Internet puts vast information at your fingertips so you can learn about VCs and angels far in advance, including the role they prefer to play and the results from any situation where the VC or angel wanted controlling interest and how this has gone for the founders. That way, you will typically only end up with investors that share your belief in terms of how much they can be involved rather than being in for the shock that they want to own your startup.

When it’s Not What You Expect

However, if you get to the pitching stage and then a funding offer only to then discover that the investor wants a controlling interest, then you have the following options:

Politely thank them for their time and be on your way to the next pitch with an investor who does not want to control your business.

Decide to listen to what they have to offer in terms of why their controlling interest would benefit the company and you as the founder.

Bootstrap your business by focusing on different types of funding sources, including loans and crowdfunding to ensure that there are no surprises about who is going to have control.

Take a smaller amount of funding than an investor typically wants is in relation to how much they have invested and the value they place on the company. For example, they have invested $5 million and think the company is worth $15 million, then they will want approximately a third of your company. This is where you can decide take less across a wider group of investors.

Maybe You Don’t Want to Be in Complete Control

You are probably not going to be able to negotiate, because they are not likely to change their minds. However, once you hear them out, the thought of giving them a controlling interest might not necessarily a bad thing, depending on the role and time you want to give to the company as well as the need for strong, well-connected leadership.

While you may think that being in complete control is the best thing, it is not always the right thing for the product or service you are offering. Sure, you thought up the great idea and have something that will disrupt the market, but you might have never run an actual company and are struggling with the day-to-day operations, let alone the long-term strategic planning.